Project Description

Spin-off Overview

On July 17, 2018, Continental Corp. (ETR: CON) announced that it would be spinning off its Powertrain business. Continental expects to complete a partial IPO in the middle of 2019, but retain control of the new public company. 

Source: Continental Slide Deck

Background:

From MarketWatch:

July 18, 2018 8:49 a.m. Continental AG (CON.XE) said Wednesday that it will spin off its powertrain unit as part of an organizational reshuffle that will reduce its corporate structure to three divisions.

The company will carve the powertrain division out into an independent business by the start of 2019, but said it doesn’t plan to give up control of the unit. Continental expects to conduct a partial initial public offering for the new business from the middle of the year, it said.

As part of the reorganization, Continental is creating a holding company that will consist of two groups–rubber and automotive–on top of the powertrain division.

Continental Automotive will incorporate the chassis and safety and interior units, while Continental Rubber will include the tires and ContiTech divisions. The organizational changes will be applied from 2020.

The powertrain spinoff will have operational costs of about 350 million euros ($409.3 million), to be incurred mainly in 2018 and 2019, the company said. The operation will also result in a tax hit of about EUR100 million.

Continental said its guidance for 2018 is unaffected by the changes.

From WSJ:

Continental AG said Wednesday it will spin off its powertrain unit next year, valued by analysts at up to €7 billion ($8.2 billion), as the automotive supplier accelerates its plans to streamline the company.

But the move disappointed analysts after Continental said it wouldn’t list the much large rubber group. Evercore ISI said “a minority listing of the €6-7 billion Powertrain division does little to unlock value, with the vast majority of a value unlock coming from listing the €30 billion Rubber Group.

Continental’s effort to become faster and more efficient comes as the entire industry is forced to spend billions of dollars to develop the new technologies needed for self-driving cars and new automotive services such as car-sharing and ride-hailing. Continental raised the possibility of a restructuring and potential spinning off the businesses earlier this year.

Resources from Continental:

Press Release – July 18, 2018

Articles

WSJ – Continental to Spin-off Powertrain Unit – July 18, 2018